Affirmative Action Panel May Cut Awards to Wealthy : Reform: Advisers expected to urge President to end preferential treatment for some on contracts, loans.

Some wealthy minority business people no longer would be eligible for preferential treatment in the awarding of federal contracts and loans under a proposal being considered by Administration officials examining government affirmative action programs, according to knowledgeable sources.

The proposal is being studied by members of the special panel set up by President Clinton to review existing programs and suggest possible changes. Although no final decision has been made, sources said that the review panel is close to recommending the idea to the President.

If accepted by Clinton, these tightened “means test” rules could be the most substantial product of the review and could help mute the complaints of critics that too often affirmative action helps well-off minorities while excluding disadvantaged white males.

But it could also enrage minority business people and their advocates, who argue that such special aid helps spur overall minority employment and strengthen the small minority component of the economy.

Clinton and top aides have given abundant signals that they intend to reaffirm their overall commitment to affirmative action in the review, which was announced two months ago to rethink the Administration’s position amid a renewed national debate over the 30-year-old concept. The exercise is agonizing for Clinton because the issue divides the liberal Democratic base from many of the white moderates whose votes Clinton will need for reelection.

But Clinton and his aides also have signaled that they could modify some of the 160 federal programs to make them seem more fair and reduce the opportunity that they give the GOP opposition to attack affirmative action.

These contract set-aside and loan programs have been a particular target of opponents, who have found them more useful than affirmative action efforts on college admissions, or even hiring, to illustrate what they say is the system’s unfairness.

The review has particularly scrutinized the so-called 8 (a) program, the minority small business set-aside effort, which is a model of federal efforts to reserve contracting business for minorities and women. It is named after Section 8 (a) of the Small Business Act.

Since 1969, about $48 billion in federal contracts have been funneled to concerns that are at least 51% owned by people who qualify as “socially or economically disadvantaged.” Disadvantaged status applies automatically to most minorities.

Critics have complained that the program is unfair because it often insulates the businesses from competitive bidding and because most of the beneficiaries are companies not in inner cities but in suburbs, particularly in the Washington area.

But perhaps an even more damaging criticism is that the guidelines permit wealthy minority business people to receive these preferences. Last year, auditors for the Small Business Administration investigated 50 of the minority firms and found that they included 35 people with individual net worths over $1 million.

The Administration thus could propose tightening eligibility rules that now permit participants to have a net worth of as much as $250,000, not including their home equity, business investment or--in 40 states--their spouse’s assets. The rules also allow an applicant to remain eligible, even if his assets rise to $750,000 during a nine-year participation period.

There are signs that Clinton’s congressional allies would look favorably on a tightening of eligibility rules in set-aside and loan programs. When the House Ways and Means Committee considered a proposal from Rep. Jim McDermott (D-Wash.) to tighten rules for a program of tax breaks for minority broadcasters in February, all 13 committee Democrats went along.

If Clinton does decide to tighten such eligibility rules, he may find himself in a race with congressional Republicans. Particularly in the Senate, they have indicated a desire to reshape the program.

The Administration would have to propose legislation to change some aspects of the 8 (a) rules. But other rules could be tightened administratively, said Judy England-Joseph, a General Accounting Office analyst who has studied the program.

While these kinds of changes could help the Administration stake out a more defensive position in the coming rhetorical battles, some analysts believe that their use in persuasion is strictly limited.

“A lot of the widespread fears about the unfairness of the system to whites aren’t going to be altered by some minor policy changes,” said Margaret Weir, an analyst of federal social programs at the Brookings Institution.

Clinton also has said that, “where possible,” he wants to key affirmative action programs to all of America’s disadvantaged, rather than just to minorities or women. To accomplish this, he could propose changes to further open the contracting and loan programs to disadvantaged whites, even as he screens out some wealthy minorities.

He could, for example, ease 8 (a) program rules that say whites may be eligible if they can prove they have suffered from discrimination.

White House aides stressed that no decisions have been made by the President, even on the timing of the announcement. While Clinton said in his Tuesday evening news conference that the conclusions of the review “won’t be long” in coming, one senior aide said that it still is unclear whether the results will be ready before Clinton’s May 8 trip to Moscow.

And past experience with top-level policy reviews suggests that Clinton, who has been intimately involved in the theoretical and practical aspects of the review, could change direction sharply in the final moments of the deliberations.

* PREFERENCE ISSUE DEBATED: Opponents of affirmative action debated Willie Brown. A3